Med-Mal 102 : Alternative Markets for Malpractice Insurance Explained
Trusts vs Joint underwriting associations vs Risk retention groups vs Risk purchasing groups.
Other alternative market mechanisms might include joint underwriting associations, risk retention groups, and risk purchasing groups.
Some state laws provide for special-purpose vehicles or trusts that may operate on an assessable basis. These laws generally provide for ease of start-up for such organizations by exempting them from certain insurance laws such as minimum capital requirements.
Assessability is the policyholder’s obligation to cover past company losses for which reserves have proven to be inadequate. This means that if the organization cannot meet its financial obligations, it can require its insured physicians to make up the deficit.
If you are considering coverage through the alternative market, you should carefully investigate all aspects of the policy, especially provisions regarding extended reporting (tail) coverage requirements, the organization’s financial solvency, its regulatory requirements, and rules regarding a policyholder’s assessability.
Trusts are an alternative to insurance companies. In some states, trusts are neither regulated by state insurance departments nor protected by state guarantee funds in the event of insolvency. Trusts frequently require capital contributions in order to join, and trust members are retroactively assessable if assets prove insufficient to pay losses. Coverage through trusts may also be provided on a claims-paid basis, which means that premiums are based only on claims settled during the previous year or those projected to be settled in the coming year. Many claims- paid policies are assessable for a number of years, or even indefinitely, after a physician’s policy has terminated.
Some trusts stop defending and paying open claims for members who go elsewhere for coverage if the members do not agree to remain assessable or if they do not purchase tail coverage from the trust.
Risk retention groups (RRGs)
Risk retention groups (RRGs) allow a group to form as an insurance company and require that it follows the insurance laws of at least one state. An RRG is governed by the regulations of the state in which it is domiciled— and if appropriately capitalized and operated, can be a viable insurance alternative.
When first joining an RRG, a physician is typically required to pay a capital contribution in addition to the annual insurance premium—so the RRG has surplus before issuing policies. RRGs formed with initial capital do not require those contributions from members.
A risk retention group must file an annual financial statement in its chartering state and in all states in which it operates. Doctors considering purchasing insurance from an RRG should review the group’s financial statements to ensure the RRG meets high standards of solvency.
Joint underwriting associations (JUAs)
Joint underwriting associations (JUAs) are state-sponsored programs for physicians who have no access to other sources of professional liability insurance, typically as a result of some problem that causes the standard medical malpractice insurers to refuse to insure them. Some JUA insureds bear infinite assessability for losses incurred by the organization during prior years of insurance activity. In some states in which JUAs operate, all casualty insurers in the state are assessable. In others, only the insured doctors are assessable. In those instances in which only the insureds of the JUA are assessable, ultimate financial obligations are unpredictable and can be significant.
Risk purchasing groups (RPGs)
Risk purchasing groups (RPGs) are not insurance companies but are associations of insurance buyers with a common identity, such as a medical specialty society, who form an organization to purchase liability insurance as a group. Since an RPG purchases coverage from an insurance carrier, no capital contributions are required to join.
The company from which the RPG purchases insurance need not be licensed in every state. The purchasing group’s insurer must indicate how much premium was generated by the purchasing group in each state in its National Association of Insurance Commissioners’ annual statement. Physicians considering purchasing insurance through an RPG should inquire about the strength of the insurance company that provides coverage to the purchasing group.
In addition to those types of companies, insurance syndicates also exist, such as those supporting insurance at Lloyd’s of London. A syndicate is not an insurance company but a group of individuals or companies that agree to share liability and profits in making contracts of insurance.
The guidelines suggested here are not rules, do not constitute legal advice, and do not ensure a successful outcome. The ultimate decision regarding the appropriateness of any treatment must be made by each healthcare provider in light of all circumstances prevailing in the individual situation and in accordance with the laws of the jurisdiction in which the care is rendered.